On August 16, President Joe Biden signed the $750 billion health care, tax and climate bill the Inflation Reduction Act (IRA) into law.  This followed passage by the Senate through the budget reconciliation process which required votes from all 50 Democratic senators and the Vice President’s tie-breaking vote – since no Republican senators voted in favor of the bill. The measures in the bill are restricted to those that directly change federal spending and revenue, and all elements were subject to review by the Senate parliamentarian who did indeed make some cuts.

With the passage and signing of the IRA, there is now some forward movement toward prescription drug price control. The bill finally recognizes the federal government as the largest purchaser of drugs and includes a measure that allows the federal health secretary to negotiate the prices of certain drugs each year for Medicare. However, the measure applies to only a very limited number of drugs and it won’t take effect quickly.

Under the new provisions, Medicare would be able to negotiate “a fair price” for 10 drugs covered by Medicare Part D starting in 2026. Medicare would select from those drugs with the highest total annual Medicare costs. The negotiated price list would then expand to 15 drugs in 2027 and 2028. In 2029 and subsequent years, 20 more drugs would be added. Medicare will only be allowed to select part B drugs starting in 2028, and a drug would be removed from the list if a generic alternative becomes available.

Overall, to be eligible for negotiation, drugs must have been approved for nine years for small molecule entities and 13 years for biologics. While these changes will have no immediate impact for patients or Medicare spending, it at least opens the door to expanded opportunities to leverage better drug pricing moving forward.

The cost of insulin nationwide has been a critical issue and the bill attempted to cap the price of insulin at $35 per month. However, that was ruled out of order by the Senate parliamentarian, who ruled the cap could apply on Medicare, a government program, but not on private insurance. As a result of that ruling, the Democrats split the measure between Medicare and private insurance, but Republicans ultimately blocked the measure for private insurance.

As part of the “vote-a-rama” of amendments initiated by Republicans, there was also a failed amendment to reintroduce a defunct Trump administration regulation that would have required federally qualified health centers (FQHCs) to make insulin and injectable epinephrine available to patients at or below 340B costs. 

The parliamentarian also ruled that a measure that was in the bill to force drug companies to offer rebates if prescription prices outpaced inflation was not totally in line with the rules for budget reconciliation and could only apply to Medicare patients – but not those with private insurers. This provision is expected to begin in October for Part D drugs and in January 2023 for Part B drugs.

The bill puts a cap of $2,000 on out-of-pocket prescription drug costs for people on Medicare, effective in 2025. While this is a positive move, it also offers no immediate relief to patients struggling with current out-of-pocket prescription drug costs.

Finally, there is also a three-year extension on healthcare subsidies in the Affordable Care Act originally passed in a pandemic relief bill last year, intended to help keep premiums for eligible enrollees at $10 per month or lower and helping millions of Americans avoid spikes in their health care costs.

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